Federal Reserve Chairman Ben Bernanke used this years Economic Symposium to challenge Fed policymakers to Ã¢â‚¬Å“make the difficult choices that are necessary to put the countryÃ¢â‚¬â„¢s fiscal house in orderÃ¢â‚¬Â. Bernanke also repeated last yearÃ¢â‚¬â„¢s message that despite record low interest rates and yields on Treasuries, the Fed still has policy tools at its disposal to stimulate the economy.
Unlike last yearÃ¢â‚¬â„¢s gathering however, Bernanke did not make any specific announcement on the timing of any actions the Fed may have in mind. The only commitment from Bernanke is to say that SeptemberÃ¢â‚¬â„¢s policy meeting would be extended by a day to allow a Ã¢â‚¬Å“fuller discussionÃ¢â‚¬Â of the state of the economy.
QEIII On Hold?
In the days leading up to the symposium there was much conjecture on the possibility that the Fed would announce another round of quantitative easing. Bernanke made no mention of kicking off a third program of bond buying to inject more liquidity into the banking system but this option likely remains a matter to be discussed at next monthÃ¢â‚¬â„¢s meeting.
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Investors were no doubt disappointed that todayÃ¢â‚¬â„¢s address offered no official confirmation of further spending. As a result, markets responded negatively in the aftermath of BernankeÃ¢â‚¬â„¢s comments but by mid-afternoon both the Dow and the Nasdaq were back in positive territory.
Bernanke Challenges Policymakers
In a surprising move, Bernanke directed a considerable part of his speech to the nationÃ¢â‚¬â„¢s policymakers including a strong indictment of how Congress dealt with the recent credit ceiling debate.
In what can only be described as a rebuke to Congress, Bernanke urged federal legislators to take the problems facing the economy more seriously. Bernanke practically implored lawmakers to set aside the politics and to act now Ã¢â‚¬Å“to put in place a credible plan for reducing future deficits over the longer termÃ¢â‚¬Â.
Ã¢â‚¬Å“The negotiations that took place over the summer disrupted financial markets and probably the economy as well,Ã¢â‚¬Â declared Bernanke. Ã¢â‚¬Å“Similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.Ã¢â‚¬Â
This is certainly the strongest language to date for the Fed Chairman and may possibly underscore a growing sense of desperation at the Federal Reserve. It is fine for Bernanke to tout the FedÃ¢â‚¬â„¢s policy tools but these have been tried with limited success. Bernanke now appears to be handing the ball to the fiscal policymakers.
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